There's No Accounting for Goodyear

Haven't we been down this road before? Isn't this story just a retread?

Goodyear (NYSE: GT) announced that it will delay filing its amended 2003 annual report because of an "accounting issue," and it may be unable to file its 2004 report, to boot.

We thought the world's largest tire maker had put its accounting issues of the past year behind. It seemed to be gaining traction once again in the market. However, this news may deflate the company once more.

At issue is an $8 million, 10-year supply deal with its Australian partner, South Pacific Tyres, and the problem of aligning it under generally accepted accounting principles. Currently the deal is prepared under Australian accounting principles and then adjusted for use in the U.S. Goodyear has been amortizing the deal over 10 years, but it may end up having to restate its financials and recognize the entire amount as a pretax expense in 2000. Auditors may ultimately find that there is no impact on its previously reported financial results. However, the company notes that in the course of the review, it may find additional items that impact its profits and losses for prior years.

Goodyear's accounting woes have been well-documented in the pages of The Motley Fool. What began as an accounting software bug soon led to irregularities being discovered in its European operations and a string of restatements that caused the markets to lose confidence in the tire maker. With each new pronouncement, its struggling stock would take a hit. By August, though, it seemed the company had turned the corner,  put its accounting woes behind it, and begun posting solid numbers.

The stock, trading at around $4 a share some two years ago when the problems began, had climbed all the way back to around $15 in pre-holiday trading. That's as a result of selling more tires and, like competitor Cooper Tire & Rubber (NYSE: CTB), raising prices on its brands.

While it has been steadily building up its cash position -- up to $1.6 billion at the end of the latest quarter, assuming the numbers hold (apparently a big assumption with this company) -- it still has a massive amount of long-term debt (more than $5.6 billion) that it needs to address. Until the latest accounting imbroglio hit, many believed Goodyear had the ability to come back strong, particularly since it had introduced a well-received new tire design and smoothed ruffled feathers at dealers.

Whether this latest news sends Goodyear into a skid remains to be seen. While the news that it will be unable to file its amended 2003 reports is not good, the markets aren't likely to take kindly to the company's announcement that it doesn't know when it will file its 2004 annual report. With an enterprise value-to-free cash flow ratio in excess of 32, the tire maker, by at least one valuation, appears overvalued. It also trades at a minuscule 0.14 price-to-sales ratio, and any subsequent price dip may be a chance to retread positions and pick up some more shares.

Goodyear has weathered more significant debacles than this latest one, and it should prove resilient yet again.

Fool contributor Rich Duprey has always wanted to ride in the Goodyear blimp. He owns shares of Goodyear, but does not own any of the other stocks mentioned in this article.